NetApp had a few things to say about EMC's
June 9 open letter to Data Domain employees, a letter that extolled Data
Domain's virtues and compared it to—you've guessed it—EMC itself.
NetApp and EMC are in the middle of a bidding war of sorts in pursuit of
fast-growing midrange storage system provider Data Domain.
"Make no mistake: This letter was written to the Data Domain
shareholders," NetApp Chief Marketing Officer Jay Kidd told eWEEK.
"It's interesting that EMC is concerned enough about the perception of the
Data Domain employees [of the impending deal] that they find it necessary to
write this letter. And they should be concerned, [based on] all the commentary
we've heard from Data Domain employees who dread the idea of being part of EMC,"
Kidd said.
Legally, Data Domain cannot respond publicly about EMC's
June 1 unsolicited all-cash offer of $1.8 billion or the letter sent by EMC
President, CEO and Chairman Joe Tucci on June 9. On June 3, Data Domain's board
of directors voted
unanimously to accept NetApp's $1.9 billion cash-and-stock bid, and
stockholders are expected to vote on the deal in the next few weeks.
If its agreement with Data Domain does become final, NetApp will acquire all of
the outstanding shares of Data Domain's common stock for $30 per share in cash
and stock.
But EMC hardly sees this as a done deal.
In his letter, Tucci pointed out that EMC has acquired 11 Silicon Valley-based
companies in the last six years and said they are all running smoothly and
profitably. He argued that with the ownership and resources of EMC, Data Domain
has a much better opportunity to grow and be more profitable than it would with
NetApp.
Kidd said there is important information missing from the EMC letter that the
company does not want to discuss.
"EMC says it plans to keep Data Domain intact and operate the company as a
product division. But what are they going to do with the Avamar [deduplication]
product that competes directly with it? What are they going to do with the
enterprise disk library—either the FalconStor or the Quantum versions—that
compete[s] directly with it?" Kidd asked.
"EMC has a lot of products in this exact area. They're going to have to
rationalize, and clearly that is going to affect employees—EMC employees,"
Kidd said.
EMC's shareholders should be concerned that EMC wants to spend $1.8 billion on
products that the company already has, he said.
"There's going to be cannibalization of revenue," Kidd said.
"It's hard for EMC to argue that there's going to be much incremental
revenue from this acquisition. It's much easier for NetApp, which doesn't have
a product that competes in this space."
Will antitrust questions become an issue?
What's also missing is that EMC is likely to encounter antitrust scrutiny if it
acquires Data Domain, Kidd said, due to the number of products it has in the
VTL (virtual tape library) and deduplication markets.
"In deduplicating VTLs, we believe they have over 50 percent market
share," Kidd said. "That includes mainframes-to-open-systems
deduplication, where Data Domain also competes.
"Customers now have a choice between EMC and Data Domain for this
products, but if EMC wins this bid, they'll be buying from one company—which
clearly reduces competition," Kidd said. "You won't hear anything
about this from EMC."
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